Surge in manpower productivity behind India’s economic boom

Mumbai: Indian industry is not the only one on a roll. So are its workers.

An analysis of 50 diverse firms and their annual reports shows an increase in productivity, which means fewer workers are delivering more.

At Bajaj Auto Ltd’s Chakan plant near Pune, it took only 850 people to produce one million two-wheelers last year. In 2000, by comparison, it took 22,000 workers at the company to produce as many.

The surge in productivity, according to human resources (HR) managers and workplace experts, stems from advances in technology, the implementation of processes, and the need to satisfy demanding employers and choosy consumers. While wages and spending on employees have also increased, they have not soared in the same proportions to productivity. Observers also caution that India still has a long way to go before it catches up with systems and processes often taken for granted in the West.

The Mint analysis found that a majority of companies reported an increase in both revenue and profit per employee. Though this results in a simplistic calculation of productivity, the ratio offers an insight into increased industrial efficiency in India.Mint could not ascertain the effects of seasonal or temporary workers on total output, as only some companies account for them in annual reports.

Bajaj Auto’s profit per employee has grown 65% to Rs10.61 lakh since 2005, while revenue for each employee has gone up by 72.6% to Rs90.9 lakh. The company, meanwhile, has reduced its employee strength from 10,914 to 10,250 over the last two years. Bajaj focused on three components to make this happen—material, equipment and manpower.

“Manpower productivity was improved by addressing job design and factors that impede output,” says Pradeep Srivastava, president of engineering at Bajaj Auto Ltd.

Simultaneously, the productivity of material and equipment was improved through process redesign, new developments in technology, equipment improvement, and process and logistics planning, in addition to reducing waste.

Competition, in some cases made possible by newly opened sectors and in others by a flurry of entrepreneurship, also has forced the issue, says Satish Pradhan, executive vice-president of group HR for Tata Sons, the holding company for the divisions within the Tata group. “These forces have helped us realize what kind of value needs to be created within organizations,” he adds.

The analysis included four Tata group companies that had revenues above Rs1,000 crore and with public data on employees. These companies—The Tata Power Co. Ltd, Tata Steel Ltd,Tata Motors Ltd and Titan Industries Ltd—all saw profits per employee increase between 30% and 80% since 2005. During that period, though, the headcount for Tata Power and Tata Steel decreased, while the other two companies remained about the same.

Macroeconomic indicators also substantiate the notion that worker productivity is increasing. The latest data released by the Central Statistical Organization estimates that manufacturing recorded a growth rate of 12.5% for the last fiscal year. In April, it grew 15.1%, compared with the corresponding period last year.

The growth has helped the index of industrial production (IIP) grow at a rate of 13.6% in April 2007, the highest in the past 11 years. The country’s industrial production makes up a quarter of the economy.

At cement manufacturer ACC Ltd, productivity was enhanced with a series of measures, from modernization of technology at manufacturing facilities to optimizing costs. Profit per employee jumped 200% over a two-year period to Rs11.9 lakh in 2006. Net sales per employee grew by more than 41% during the period to more than Rs61.3 lakh.

“We’ve just done the right things,” says R. Nand Kumar, head of corporate communications and corporate social responsibility at ACC. “We believe that our productivity has increased because our performance management has been at its peak.”

Even as they looked inwards to make improvements, companies also say going global and doing business in and with other countries demanded new norms of productivity.

“From our experience, we have seen many organizations increase productivity as they went global and achieved scale. The pervasive use of technology, too, has resulted in higher productivity,” says Deepak Malkani, partner of lead human performance at Accenture India.

The steel industry, too, has increased its output. “The steel industry is riding on the demand boom,” says Akhil Jindal, president of Welspun Gujarat Stahl Rohren Ltd. “At this point, the higher capacity utilization is directly adding to the bottom line,” he says. Welspun Gujarat itself is likely to achieve a production target of 650,000 tonnes this year, more than double that of 2005.

Experts in the field of HR say that the growth in productivity must be measured in context of rising employee costs.

Santrupt Misra, a director at Aditya Birla Management Corp. Ltd and head of the group’s corporate HR, says that with wage costs going up significantly, organizations are thinking about how they can improve efficiency. “Wage pressures are going to grow and companies will have find ways to enhance their productivity in this environment,” Misra adds.

Birla Corp. Ltd, for instance, has seen its profit per employee soar 314.2% from 2005 to Rs2.8 lakh, while net sales per employee has gone up to Rs13.6 lakh, an increase of 40.4% in the last two years. Employee costs simultaneously rose about 7%.

Individual companies of the group, too, have seen a marked growth in net sales and profit per employee. Aditya Birla Nuvo Ltd, a diversified company, saw both sales and profit grow by more than 50% over two years, whereas Hindalco Industries Ltd, the aluminium major and the flagship of the group, saw both net sales and profit per employee increase by almost 90% for this period. Though headcounts for these companies increased only marginally over these two years, employee costs rose between 25%, in the case of Hindalco, and 36%, for Aditya Birla Nuvo.

Employee costs have been rising primarily due to sharp increases in wages, though other factors, such as training, also have a bearing. On an average, employee costs in 2006-07 rose more than 20% over the previous year.

According to a survey by consulting firm Hewitt Associates, salaries of Indian employees increased by 12-16% from 2005 to 2006, the highest in the world. The survey said Indian firms were expected to pay their employees 14.5% more in 2007.

Whether wage increases can be both a cause and effect of increased productivity, outputs are expected to continue their rise. And while the improved productivity is good news, industry heads and experts believe that Indian businesses still have a long way to go in catching up with some of the developed countries.